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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Break-even revenue for the multiple-product firm can

  1. a. be calculated by dividing total fixed cost by the overall contribution margin ratio.
  2. b. be calculated by dividing segment fixed cost by the overall contribution margin ratio.
  3. c. be calculated by dividing total fixed cost by the overall variable cost ratio.
  4. d. be calculated by multiplying total fixed cost by the contribution margin ratio.
  5. e. not be calculated; break-even revenue can only be computed for a single-product firm.

To determine

Identify the formula of break-even revenue for a multiple-product firm.

Explanation

Break-Even Revenue:

The revenue that determines the number of units to be sold to cover the cost is called break-even revenue. Break-even revenue is equal to the cost at the break-even point.

a.

The break-even revenue for multiple-product firm is calculated by dividing the total fixed cost by the overall contribution margin ratio. Since, break-even revenue of multiple-product firm is combining the revenue of individual products, so, break-even revenue for multiple product firms is calculated similar to the individual product firm. Hence, option a is correct.

b.

The fixed cost is commonly allocated to each product, so the segment of fixed cost is not used...

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